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CHAPTER ONE
GLOBALIZATION AND INTERNATIONAL BUSINESS
OBJECTIVES
Define globalization and international business and show how they affect each other
Grasp why companies engage in international business and why international business growth
has accelerated
Discuss globalizations future and the major criticisms of it
Illustrate the different ways in which a company can accomplish its global objectives
Recognize the need to apply social science disciplines to understanding the differences
between international and domestic business
CHAPTER OVERVIEW
Globalization has become a major socioeconomic force and topic of debate in the twenty-first
century. Chapter One examines the forces that are driving this phenomenon, as well as the often
passionate criticisms of the process. It reviews the objectives that firms pursue when they engage
in international business activities and describes the various modes of entry that may be used. It
also notes the terminology that has come into existence as new types of organizations have
evolved. The chapter concludes with a discussion of the ways in which international business
differs from domestic business.
CHAPTER OUTLINE
OPENING CASE: THE GLOBALIZED BUSINESS OF SPORTS
[See Map 1.1]
Although not everyone agrees that the unbridled globalization of professional sports is all for the
good, the process and possibilities are definitely far reaching. Todays satellite television
broadcasts enable fans to watch top players and teams in nearly any sport from almost anywhere
on earth. Professional teams scour the world to find and develop the most talented athletes, and
players forsake home country allegiances in their pursuit of the worlds highest salaries. Further,
the more people that tournaments can attract through attendance and television, the more money
that sponsors and advertisers are willing to payand the greater the likelihood that those
sponsors and advertisers will have business operations that span the globe. In addition, sports and
nonsports companies alike pay famous athletes and teams generous sums to endorse their
products. Successful teams have opened shops both domestically and internationally to sell
souvenirs bearing their logos and may make more money on merchandise than from TV rights and
sponsorships combined. Most recently, as teams and leagues have begun to seek income
Questions
1.1 Professional athlete A is a star. And professional athlete B is an average player. How has the
globalization of professional sports affected each of these both positively and negatively?
All athletes playing abroad may generate interest in a players native country, due in part to
the ability to watch games taking place anywhere in the world through live Web stream or
satellite television. This gives not just the team owners, league representatives, but also the
players a broadened audience exposure, expanded fan base and the opportunities for
additional revenues. On the negative side, in undertaking any international sports effort, the
athletes and teams must be sensitive to cultural differences. They need to appreciate
differences in the world and understand how the same sport can be interpreted differently
from country to country. It can also be noted that the average players can benefit by playing
and presenting his skills to professional teams from foreign markets, which can in turn
potentially offer them a contract. (LO: 2, Learning Outcome: To understand why companies
engage in international business and why international business growth has accelerated,
AACSB: Analytical Skills)
1-2 As you read the chapter, identify and show an example of each international mode of
operations that is illustrated in the globalization of professional sports.
Using the NBA as an example in the opening case, it searches globally for talent and
additional markets for its product. This is similar to any manager in almost any industry, who
needs to identify where you can obtain the best inputs at the best price and where you can
best sell the product that you have put together from those inputs. (LO: 2, Learning
Outcome: To understand why companies engage in international business and why
international business growth has accelerated, AACSB: Analytical Skills)
TEACHING TIPS : Carefully review the PowerPoint slides for Chapter One. A good
Internet source of information on globalization can be found at
www.globalization101.org. Finally, review the atlas provided in the text, where you will
find maps of the world and its continents, as well as a country index.
I. INTRODUCTION
As people, firms, and other organizations have expanded their access to resources, goods,
services, and markets across wider geographical areas, they have also become more deeply
affected (positively and negatively) by conditions outside their home countries.
Globalization refers to the broadening set of interdependent relationships among people
from different parts of a world that happens to be divided into nations.
POINT: Offshoring is good because it reduces costs. Although a firm may temporarily need
fewer workers in its home country, eventually domestic employment (particularly high-value jobs)
COUNTERPOINT: Only a few people benefit from offshoring. Cheaper labor inputs have not
resulted in cheaper prices for consumers. Further, firms that grow as a result of offshoring do so
at the expense of their competitors; thus, there is no real economic growth. Displaced workers
are forced to take jobs with fewer, if any, benefits and lower pay, while multinationals take
advantage of their foreign workers, who are powerless. While a few countries are growing
economically, world poverty levels have increased significantly in recent decades.
By envisioning different ways in which the future may evolve, a company can be better prepared
to develop the facilities and people needed to succeed in an uncertain environment. At this time,
there is much discussion about the following three viewpoints.
The first view, that further globalization is inevitable, is based largely upon the premise that
technical advances in transportation and communications are pervasive, that consumers demand
the best products for the best prices regardless of their country of origin, and that MNEs are so
powerful they can pressure governments to further reduce restrictions on trade and investment. If
this is true, then the challenge is to determine what to make of globalization with respect to the
distribution of its costs and benefits.
The second view, that international business will grow primarily along regional rather than
global lines, is premised on studies that show that almost all firms that consider themselves global
conduct a dominant portion of the business in their home and neighboring countries. It may be
possible however, that regionalization is a transitional step on the route to globalization.
The third view, that forces opposing globalization will greatly slow its growth, is not to be
dismissed. Historically, pressure groups have often been successful in obstructing policies and
activities that threatened their own well-being. In addition, recent anti-globalization interests
Although sea voyages have held an aura of mystique for centuries, only in recent decades have the
general masses been able to experience open seas and exotic ports of call as a purely recreational
activity. Cruises, i.e., sea voyages for pleasure, offer passengers the convenience of an assigned
cabin as they sail along a fixed itinerary that concludes at their original point of sea embarkation.
Almost everything about the entire cruise industry is international, from the routes traveled to the
use of flags of convenience to the locations of shipyards to the staffing of vessels. By far the
largest cruise competitor is Carnival Corp., which owns a number of different lines that it calls
brands. Because Carnival operates globally, it can treat the entire world as a source of both
customers and supplies. At the same time, its widespread operations also leave Carnival
vulnerable to political upheavals, health crises, economic recessions, and natural disasters. Still, in
all, the future outlook both for the industry and for Carnival is bright as more people the world
over choose a holiday cruise.
Questions
1-3 What global forces have contributed to the growth of the cruise-line industry?
Two major factors that have contributed to the growth of the cruise industry are the change in
the competitive environment brought about by the advent of transoceanic airline service and
increasing discretionary incomes. As demand for liner travel declined in response to the
development of less expensive and much faster air service, shipping lines were forced to
respond to the new market conditions by developing sea travel for the middle class, i.e.,
cruises. In addition, all-inclusive prices, a wide range of on-board and on-shore offerings, and
the additional safety and security measures provided by the cruise industry have proven very
attractive in light of recent political and socio-economic events. (LO: 1, Learning Outcome:
Define globalization and international business and show how they affect each other, AACSB:
Analytical Skills)
1.4 What specific steps has Carnival Cruise Lines taken to benefit from global social changes?
Carnival has responded to global environmental changes in a variety of ways. Because a ship
is highly vulnerable to terrorist acts, Carnival has instituted very strict security measures. It
has also implemented strict health and safety measures. Carnival has dealt with economic
recessions by offering shorter cruises that embark closer to home and with times of economic
prosperity by offering longer cruises that incorporate more exotic destinations. It minimizes
staffing costs by sourcing employees on a global basis. In addition, across its various lines,
Carnival offers a wide variety of themes, classes of service, and destinations. (LO: 2,
1.5 What economic factors influence success of the international cruise industry? Explain how
each affects such success.
Economic factors affect the operations of cruise lines, which are truly international in nature.
For example, most shipping lines choose to flag their vessels in countries such as Liberia,
Mongolia, or Panama because of the lower taxes and less stringent employment practices
required by the laws of those countries. Relatively few countries (Finland, France, Germany,
Italy, Japan, and South Korea, for example) have shipyards capable of building cruise ships.
Consequently, governments (e.g., Italy) may choose to subsidize the ship-building industry in
order to secure contracts for their domestic firms. (LO: 5, Learning Outcome: To apply social
science disciplines to understanding the differences between international and domestic
business, AACSB: Multicultural and Diversity Understanding)
1.6 Although most cruise line passengers are from the United States, the average number of
annual vacation days taken by U.S. residents is lower than that of workers in most other
high-income countries (13 days, compared with 42 days in Italy, 37 in France, 35 in
Germany, and 25 in Japan). How might the cruise lines increase sales to people outside the
United States?
Given that the majority of people in the targeted income segment have yet to take a cruise,
the major task confronting the cruise line industry is one of marketing. In addition to
promoting the many appealing features of its various cruises and lines throughout the
developed world and selected developing countries, Carnival could partner with foreign
airlines and travel agents in order to get foreign vacationers to its many ports of embarkation.
(LO: 4, Learning Outcome: To become familiar with different ways in which a company can
accomplish its global objectives, AACSB: Dynamics of a Global Economy)
1.7 What threats exist for the future performance of the cruise-line industry and, specifically, of
Carnival Cruise Lines? If you were in charge of Carnival, how would you (a) try to prevent
these threats from becoming reality, and (b) deal with them if they were realized?
While the potential market for Carnival seems very attractive, port capacity could well
become an issue. The deep water and the massive facilities required to dock a liner in any
port are limited. In addition, there are passionate cries from environmentalists regarding the
damage (pollution of the seas, disorientation of sea mammals caused by the noise of the
propellers, etc.) being caused by liners both in port and at sea. Should there be a major
global economic disaster or a global health pandemic, the cruise line industry will surely
suffer.
To proactively deal with the possibility of a downturn, Carnival should invest heavily in
research and development in order to continually minimize the environmental impact of its
ships and their operation. It must also carefully develop its global cruise structure in a way
that complements existing capacityor else work with ports to provide additional capacity.
1.8 Discuss the ethics of cruise lines regarding the avoidance of taxes while buying ships built
with governmental subsidies.
This is definitely a complex issue. While cruise lines avoid most taxes by flying flags of
convenience, they argue that they must do so for competitive (cost-savings) reasonsand
that other governments could choose to offer the same benefits. Their supporters also argue
that the lost taxes are at least to some extent indirectly offset by port fees and passenger
spending, and that the taxes realized by less developed countries are important contributions
to their economies. However, others argue that the less restrictive staffing, safety, and
operating requirements associated with flags of convenience are intolerable. They argue that
lesser standards pose both safety and environmental hazards and that in the long run, the
costs to society are high. They feel strongly that if shipping lines receive government
subsidies on the one hand, it is immoral and should be illegal for them to avoid paying taxes
on the other. (LO: 4, Learning Outcome: To become familiar with different ways in which a
company can accomplish its global objectives, AACSB: Ethical Understanding and Reasoning
Ability)
Exercise 1.1. Ask students to identify firms, both domestic and foreign, that operate
internationally. Take time to explore the extent and nature of their operations. Also, discuss
a logical geographical pattern of expansion for each type of operation. Conclude the
discussion by examining the list to determine if there are any particular types of firms that
seem to lend themselves (or not) to global operations and strategies. Have the students
explain why this might be so. (LO: 2, Learning Outcome: To understand why companies
engage in international business and why international business growth has accelerated,
AACSB: Dynamics of the Global Economy)
Exercise 1.2. Ask students why they think the worlds largest theme park operator, the
Walt Disney Co., was motivated to establish parks in Tokyo, Paris, and Hong Kong. What
particular market characteristics of each of those sites were especially attractive? Conclude
the discussion by asking students if they believe that Disney should establish additional
foreign parks, and if so, when, where, why, and how? (LO: 4, Learning Outcome: To
become familiar with different ways in which a company can accomplish its global objectives,
AACSB: Analytical Skills)
Exercise 1.3. Divide students into small groups and ask them to explore the costs of the
globalization process. What are the major issues? What companies seem to promote
corporate responsibility in all aspects of their businesses? What can and/or should be done to